CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY

The money market is a market for short-term funds and as the name suggests, it is a market in which money is bought and sold, the market is used by business enterprise to raise fund for the purchase of inventories and other inputs for the growth of the enterprises.

The money market can be traced to the establishment of the central bank of Nigeria. This is however not to say that a market for short-term funds did not exist before then. Before the advent of commercials banking there existed some elements of short-term handling and borrowing based on commercial paper. The market was integral part of the London money market. It worked by moving funds from London to Nigeria during the season in order to finance the export trade. At the end of the season the funds were moved back to London when there was all season money-market activity. The establishment of the Nigerian money market was credited to the central bank of Nigeria repatriating these “moving” funds to Nigeria for the country’s economic development. The development of Nigeria money market is not unconnected with the systemic introduction of various instruments used in the market which includes treasury bills, treasury certificate, call money fund scheme, commercial papers, and certificates of deposits.

Since money market is not necessarily a physical place. It exist wherever short-term lending and borrowing are conducted. The money market is not a homogenous once in the sense of dealing with one financial asset. It does not only handle a large variety of financial instruments, there is also some degree of specialization practiced by dealer institutions. These instruments serve the role of acting as avenues of investments, mobilization/generating funds and for regulating the money supply in the economy.

However, the major participants of the Nigerian money market include CBN; which acts as a lender of last resort to the commercial and Merchant Banks, finance houses, companies, corporate etc. The ineffective dealings and interaction between these institutions in one way or the other and in appropriate policies guiding the market have resulted to the distortion and imbalance in the money market and the entire economy, thus creating problem to the economic development which this study attempts to solve among other.

1.2 STATEMENT OF THE PROBLEM

The impact of the financial market in the development of the real sector and the economy at large cannot be over-emphasized. According to  Kehinde and Adejuwon (2011),a critical characteristic of the money market is that it should be deep and broad so as to absorb large volume of transactions without having any significant effects on  prices and interest. This characteristic requires that there exist many active market participants such that the transaction of an individual investor will have just infinitesimal effect on prices and interest rate. The characteristic also requires that there are  varieties of securities so as to ensure that there are always alternative investment instruments available to satisfy the respective return-risk desires of investors in the market. A money market that has depth and breadth will be informationally as well as operationally efficient and will contribute significantly to the growth of the economy.

Iyiebuniwe (2005) opines that although the Nigerian money market has experience significant growth, both of trading since the liberalization of the financial system in 1986, it still needs to be deepened further to achieve the required vibrancy that is expected of a money market. Also, Ochei and Osabu Ohien (2012) state that unlike in advanced economies where the money market constitutes the most institution for creating liquidity for government, companies and individuals, the Nigerian money market is inadequate and constrained by the absence of sub-market and availability of adequate credit instruments required for the smooth operations of the market. This is not to say that the Nigerian money market is ineffective. Much have been said and written about the Nigerian capital market but the reversal is the case for the money market in the country. Therefore, there is the need to examine this crucial market and evaluate its performance in terms of its contribution to economy development.

1.3 OBJECTIVE OF THE STUDY

The main objective of this study is to examine the transaction and activities of Nigerian money market. The other specific objectives of the study are stated below:

1. To evaluate the contribution of the Nigerian money market to the economic growth of the country.
2. To investigate the role of money market in financial in financial development in Nigeria.

1.4 RESEARCH QUESTIONS

The research questions, which would guide this study over as follows:

1. Is there any significant relationship between money market and economic growth in Nigeria?
2. Is there any significant relationship between money market instruments and the development of the Nigeria financial system?

iii. Does the money market operate with the required facilitates for efficient communication?

1. Is the return from investment in the money market compete with that from other investments of the same period?

1.5 RESEARCH HYPOTHESIS

To achieve the aim of this research the following hypothesis should be tested:

H0: There is no significant relationship between the money market transaction and economic growth in Nigeria.

H1: There is significant relationshipbetween the money market transaction and economic growth in Nigeria.

1.6 SIGNIFICANCE OF THE STUDY

Firstly, it is expected that this study will enhance the economic development of the entire nation. As well it is expected that this study will add to the body of knowledge on money market and monetary policy issues in Nigeria. Therefore, it is expected that the outcome of this study will assist monetary authorities in the formulation and re-definition or re-appraised of policies that will usher in an efficient money market.

It will also assist in the efficient and timely use of the instruments (especially open market operation) in achieving stability in the monetary system and interest rate.

This study is expected to provide great insight into the problems inhibiting the development of an efficient money market in Nigeria.

1.7 SCOPE AND LIMITATIONS OF THE STUDY

The scope of this study is limited to Rivers State. The respondents will constitute of staff from bank and non-bank financial institutions in the state.

Also this study was limited by the huge transportation cost incurred in the process of collecting the required data: as well as time constraint, as the available time was shared among this project, and the researches daily routine work, and other school activities.

Finally, the overall cost of this research study posed another big constraint to scope of this study.

1.8 DEFINITION OF TERMS

The need to erase ambiguity in the mind of any reader of this study makes the definition of some words used in this research reports so pertinent. This is done for The purpose of clarity. The following words in the report are therefore defined as follows.

MONEY MARKET

Money market can be defined as a market consisting of financial institutions and other dealers in short-term money and credit who either want to lend or borrow money:

MONEY MARKET INSTRUMENTS

Money market instruments are negotiable securities with legal claims, which are used as short-term cash substitutes. They are debt securities with short-term maturities.

OPEN MARKET OPERATION (OMO)

This is refers to the buying and selling of government securities in order to directly change the levels of bank reserves and indirectly induce change in the levels of interest rates and availability of credit and ultimately the money supply.

BREADTH OF THE MARKET

This is determined by the number of participant in the money market.

DEPTH OF THE MARKET

This is depth of the money market measures the ability of the market to absorb a certain volume of securities.